Increasing the Value of Your Child Care Business

While taking the steps to start a child care business, most owners are already dreaming of the day they will sell their center for a substantial sum. The problem is – most owners are so busy running their business little time and effort is spent engaging in activities that improve the value of their business. After years of hard work many business owners find themselves suffering burn-out and wanting to sell their business as quickly as possible. At this late date, there are few things that can be done to improve the value of a business.

In this article, we’ll discuss five very important things you should do while “running your child care business” to improve the “value of your child care business”.

1. Having a high enrollment compared to licensed capacity is, of course, a must. However, there is more to it than high enrollment. What is equal, if not more important, is profitability. Over the years, I have consulted with many child care owners that sacrificed profits to keep enrollment high. Moreover, some owners had a limited understating of which classrooms and age groups were profitable and which were resulting in actual losses. Start by analyzing your tuition rates in comparison to market rates for your area. If you are more than five percent below market rate, design a plan to increase tuition rates across age groups, so you are changing market rate or no more than five percent below.
2. Second, analyze each classroom in terms of gross revenue per week and actual cost to operate the classroom, i.e., teachers’ salaries, associated labor burden – employment taxes, social security, employee benefits, supply costs, automobile expenses and student transportation (if applicable) and food costs, and calculate a dollar amount that represents the share of utilities, insurance, repairs and maintenance, that should be allocated to each classroom. It is not enough to just tally-up labor cost compared to tuition. How does the revenue of each classroom look in comparison to total costs to operate that classroom? Begin by addressing the classrooms that are resulting in a loss versus profitability.
3. Should your center not be close to full enrollment, it is important to strategies how enrollment can be increased. When is the last time you reviewed the effectiveness of your marketing program? Marketing program – yes every child care business needs to have a detailed, written marketing plan covering all marketing activities that will be implemented throughout the year and a system for tracking and recording the results of each marketing event. Increasing enrollment and gross revenues show potential buyers that the child care business is known in the community and has a growing loyal base of parent clients.
4. Small and medium-sized child care businesses are often purchased by individual planning to become the owner-director. Larger center – licensure of 125 or more, are appealing to both the individual buyer, regional multi-unit operators, and national chain buyers. It is very important for owners of large child care centers to have a managing director overseeing day-to-day operations. Child care center buyers rarely have the selling owner continue to manage the center after the sale. Multi-unit operators are most interested in centers that are fully staffed with competent management, teachers, and staff in place for all roles.
5. Organized, systems, processes, written policies, and procedures – all result in a more valuable business. Not only are buyers looking for a well-organized child care center but organized operations and adherence to systems and processes usually result in increased profitability.

This may sound overwhelming and no doubt it will take time and concerted effort to address each of the things indicated. Start by developing a plan of action linked to a timeline that you can follow in addressing and implementing things that will improve the value of your child care business.